DEFINITION OF DECENTRALIZATION AND CENTRALIZATION
In general, decentralization can be understood that the system built is not fixated on one individual, but each individual has the same role in determining and making decisions.
In the cryptocurrency world, decentralization is better known as DeFi.
DeFi itself stands for decentralization finance, which is a financial ecosystem built on blockchain technology, the system adopted also has openness, so that with this system users can get financial services quickly without having to follow long financial bureaucratic processes such as financial services that adhere to the centralized financial system. This system makes it easy for users to make financial transactions peer to peer, meaning that the efficiency of time, costs, and administrative systems are a positive value for users.
While centralization has a centralized nature, the role of the individual in this system does not exist, every decision is determined from above.
Centralization that is built centrally (single server) or better known as CeFi (central Finance), third parties have an important role in every transaction made, for example, a user data storage system that can be fully controlled, if the security system is hacked, all user data is in risk.
THE DIFFERENCE OF DECENTRALIZATION AND CENTRALIZATION
Decentralization and Centralization have differences, for example, from a system point of view, cryptocurrency asset trading exchanges have a centralized system where every transaction is carried out with the permission of a higher authority, while the Decentralized system provides open access to users in determining and controlling assets independently.
Administratively, the decentralized system provides access to all users in various parts of the world to be able to run the system through a connection to the blockchain network, in contrast to a centralized system that limits user space, every transaction is carried out under system supervision so that the control center outside the user's authority can be detrimental unilateral.
From the aspect of its use, the centralized system can be used easily and can fulfill its obligations until maturity. A decentralized system is the opposite of a centralized system with a low level of ability to fulfill obligations.
Decentralized Financial System uses peer-to-peer transactions on top of blockchain technology with a high level of security. The centralized system has a low level of security so that it is often hacked, let alone authorities have access rights to the system, this is detrimental to users.
Decentralization uses multiple servers while centralization uses a single server, multi servers help reduce costs without sacrificing the quality and productivity of server work. While centralization that adopts a single server has the main data bank function, the weakness of this system provides limitations in user access rights to the server, either maintenance or congestion.
Advantages of Decentralization
- Faster Transactions
- Prevent fraud because the developer validates and verifies every transaction made
- Peer-to-peer transactions so that financial efficiency can be carried out.
- Not influenced by government policies
- Protect Privacy
Advantages of Centralization
- Have the same vision as the highest authority
- Reporting system easier
- Avoiding fund transfer mistakes
- The priority for decisions is the highest authority
- Protected by the Financial Services Authority
The Right System For Business
The application of centralized and decentralized methods in the business sphere requires reference and understanding of the two systems to be adopted so that they can choose the right method for the business to be run.
I prefer a decentralized system when it comes to blockchain investing, all transactions I make are in my control, every decision is absolutely in my own hands. Meanwhile, in investing in third party assets, the system built is centralized, as investors do not have a role in the changes that occur, everything happens in accordance with the previous agreement.
The centralized system in the crypto world has a negative impact, the level of trust is very low. Many investors lose when the developer loses and investors will also experience losses without any responsibility. In the case of 2019 regarding bit2x investing, their website was closed and many investors lost out from the deposit system that was implemented.
How do you know if a blockchain is decentralized or not?
As explained by Crypto Professor @yousafharoonkhan on how to know if a blockchain is decentralized. The first thing you can do is access the Etherscan website at the https://etherscan.io/ link. In the provided search field, input the company's token contact address.
Look at the picture below:
Decentralization is a system built on blockchain technology that makes it easy for its users to perform peer-to-peer financial services, while Centralization has the nature of the highest authority, meaning that the role of users does not exist, decisions and all changes lie in a centralized policy scheme.
Both systems have advantages from their respective perspectives, each system will benefit the user. The most important thing in application in the business world is to study the two systems that are built, whether they are suitable for the business climate to be run.
Everything returns to the user in understanding the two existing financial service systems by considering all aspects, both positive aspects with a value of profit and negative aspects with opportunities for losses to be obtained.